1. Ostensible partners—those who hold themselves out and are known to be partners.
2. Nominal—those who are known as partners but who have no real interest in the firm.
3. Dormant or silent—those who are not known to outsiders as partners and who take no active part in the management of the firm’s affairs.
4. Secret partners—those who are not known as partners to outsiders but who have an interest and take active part in managing the firm.
For more detailed information as to a partner’s rights, duties, and responsibilities to his copartners and to outsiders, a standard legal text on partnerships or business law should be consulted. The student should also read [Chapter II] in connection with this chapter and the next.
CHAPTER XXXIII
PARTNERSHIP FROM THE
ACCOUNTING VIEWPOINT
From the fact that the law looks upon the partnership as a combination or collection of sole owners, some of the accounting problems arising out of the partnership form of organization are unique, and a partial or full treatment of some of these problems will be given in this chapter.
Profit-Sharing in the Partnership.—Of these problems perhaps the one occurring most frequently is that concerning the division of profits. Attention was called in [Chapter XXXII] to the need of explicit statement on this point in the articles of copartnership under the head of the intrapartnership relations. Since men combine their capitals for the purpose of realizing profits, it would naturally be supposed that all partnership agreements would be specific on that point. Yet it very often happens that many contingencies relating to the matter of profit-sharing have not been foreseen and as a result disputes arise.
The fundamental principles governing profit distribution may be stated as follows:
1. Where the agreement is silent, the law provides that profits shall be divided equally among the partners regardless of the amounts of their respective investments of capital. Some partners may have made no investments of money or property, setting up their particular skill and aptitude or standing in the community as their share and contribution to the profit-earning capacity of the organization. Unless it is specifically agreed otherwise, these will share equally in any profits.